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Here’s the earnings on the long put at expiration: In this example, the put breaks even when the stock closes at choice expiration at $19 per share, or the strike price minus the $1 premium paid. Below $19 the put increases in value $100 for each dollar decline in the stock. trading options. {keywords}.

The benefit on a long put is almost as great as on a long call, because the gain can be multiples of the option premium paid. However, a stock can never go listed below zero, capping the upside, whereas the long call has theoretically unlimited upside. Long puts are another simple and popular way to bet on the decrease of a stock, and they can be more secure than shorting a stock ({keywords}).

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If the stock closes above the strike rate at expiration of the choice, the put expires useless and you’ll lose your investment. {keywords}. A long put is a great choice when you expect the stock to fall significantly before the alternative ends ({keywords}). If the stock falls just a little below the strike price, the choice will be in the cash, but might not return the premium paid, handing you a net loss ({keywords}).

Short put, This strategy is the flipside of the long put, however here the trader sells a put described as “going short” a put and expects the stock rate to be above the strike price by expiration – {keywords}. In exchange for selling a put, the trader gets a money premium, which is the most a brief put can make.

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Stock X is trading for $20 per share, and a put with a strike cost of $20 and expiration in 4 months is trading at $1 ({keywords}). The contract pays a premium of $100, or one agreement * $1 * 100 shares represented per contract. Here’s the revenue on the short put at expiration: In this example, the short put breaks even at $19, or the strike rate less the premium got.

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Between $19 and $20, the put seller would make some however not all of the premium – {keywords}. The benefit on the short put is never more than the premium received, $100 here ({keywords}). Like the brief call or covered call, the maximum return on a short put is what the seller receives in advance ({keywords}).

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